Best practices for navigating the corporate-startup relationship

We unbundled the startup-corporate relationship and found clear strategies for building a culture of innovation

Startup-corporate collaboration has become a salient cornerstone of modern innovation.

Corporations are sourcing innovation from startups while startups seek affiliation with established corporations. In the past few years, both sides are increasingly engaging in a relationship. The fit is extremely complementary, and in successful partnerships, both the startup and the corporation garner tremendous benefits from collaboration.

However, while many startups and corporations seek a connection, the partnership often fails.

Unbundling Startup-Corporate Innovation and Collaboration, a Yushan Ventures research initiative, was undertaken to understand the barriers that stem from and inhibit collaboration, as well as how to overcome these obstacles effectively.

The study reveals the importance of anticipating and addressing barriers to secure a higher rate of success, yielding a higher return on innovation expenditures.

The report illustrates that the primary driver for companies to engage in collaboration with startups is to discover new technologies, followed by exploring new business models that are foreign to the core of the company.

Figure 1: Companies respond in terms of which motivational factors were most important for startup-corporate collaboration.

Yushan Ventures interviewed leading innovation-focused executives to understand what the challenges are when it comes to executing successful corporate-startup collaboration. It turns out that the main problems were not due to the startup partner or any external factors, but rather problems stemmed from the company itself.

A company is a complex institution of various individuals, departments, cultures, and structures. Innovation often seeks to challenge one or all of these elements. Enabling innovation is not limited to a single top-down or bottom-up decision process. Instead, every affected stakeholder must be in alignment to secure success for any startup engagement.

The illustration below elucidates what innovation executives cite as being the most frequent obstacles to successful engagement with startups.

Figure 2 illustrates the various challenges corporations face when collaborating with startups. The bigger the bubble, the bigger the challenge for the corporation.

Business Units’ Key Involvements

The company’s innovation team relies on mission-specific use cases that the startup collaboration will solve, it is hoped. Information is often directly collected from different business units (BUs). But, if the BU is not committed to possible collaboration with the startup, ensuring a fruitful outcome becomes a cumbersome process.

Push-back

Despite a typical company’s efforts to set goals in innovation, many heads of BUs are often unfamiliar with these goals, let alone how to achieve them. When deep-diving into factors that affect internal push-back from BUs, psychological determinants turn out to account for the majority of internal resistance.

Fear is the biggest culprit. Employees fear losing their jobs or becoming obsolete. In numerous cases, the BUs decide not to work with startups because of this fear of obsolescence. In other scenarios, the BUs are required to rearrange their departments with new objectives as a result of the startups’ effect on their company.

Pride is the second key factor that stalls or derails collaboration with startups. It includes pride in knowledge, seniority, and experience. Due to the importance of rank, startups, which often, offer a team of younger individuals with less experience than the BU, aren’t mutually respected.

Other factors to be included in the list are indolence and inadequate resources. Generally, collaboration with a startup is not part of any KPIs, and the BUs need to juggle their resources between their primary objectives, which they are evaluated on, and the possibility of new opportunities that the startup brings along. The startup requires much consulting, time, and other resources to produce even the slightest of results. Spending time with the startup may, as a result, have a negative impact on the BUs’ current KPIs.

Due to the resource requirements and lack of incentive from the BUs, the engagement often does not receive adequate fulfillment.

Figure 3: Best practices which address internal push-back from Business Units.

The Right Talent

Without the right talents in place, corporations spend significant opportunity costs on educating their employees instead of enabling a culture of innovation. The key employees who interact with startups need to understand the DNA of a startup to build necessary relationships that will result in cooperation. Depending on their responsibilities, employees with innovation talents require unique skill sets, while also putting to use previous knowledge and experience with startups, to be well connected with the startup ecosystem. The ability can be acquired through various vehicles, such as employing former VCs, startup founders, or employees from incubators and accelerators.

Due to engagements with startups being a relatively new approach for most corporations, many do not have the right talent in place for forming meaningful and worthwhile conclusions.

Summary

Obstacles between startups and corporations are evident even before both parties have begun interactions. The study reveals that collaboration frequently fails due to internal resistance from corporate Business Units (BUs) wherein psychological factors such as job security and NIH (Not Invented Here) account for the majority of resistance.

Sandboxes increase the likelihood of successful engagements — Independent innovation environments and related incentives, initiating collaboration in a discrete environment (a so-called “sandbox”). However, incentives must be in place to properly motivate employees.

The right talent is not in place – Existing corporate employees differ radically from startup entrepreneurs. Communication is often challenging between collaborators from different vocational and corporate cultures. Corporate Employees are from Mars; Startup Entrepreneurs are from Venus.

Startup-corporate collaboration without a “Use Case” will not succeed – Entering into collaboration with a startup without a specific use case will severely limit the outcome of the engagement and in many instances stall cooperation.

We have made a complementary report available for download. Use this to study the best practices on how to address the corporate-startup challenges to develop a successful innovation environment.

In the study, quantitative activities were compared with qualitative answers to highlight the best practices in terms of startup collaboration.

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Yushan Ventures, as your innovation partner, creates growth opportunities for US & European Corporations in Asia by harnessing the power of Digital Transformation, implementing Business Models, and integrating Disruptive Deep Tech.

UNBUNDLING STARTUP-CORPORATE INNOVATION & COLLABORATION was conducted in affiliation with the Universities of Twente, Bayreuth and Stanford University, and with the support of Asia-Pacific Economic Cooperation (APEC).